Customers REFUSE to Pay for Completed Work
Mike Andes helps Good Hands Roofing collect $278,000 in unpaid completed work that's draining their cash. The roofing company needs to raise deposits from 30% to 50%, enforce seven-day payment terms, and automate invoice follow-ups to fix the liquidity problem blocking growth toward $3M revenue.
Chapters
Today we're in Pennsylvania visiting Malan from Good Hands Roofing. Malan.
Yes.
Awesome.
Good stuff.
And then your brother's Melvin, right?
Yes.
Melvin. Good to see you, Nick. A family owned business that did $1.6 million in revenue last year.
We do roofing, siding, gutters, soft and fascia.
According to their reports, more than $278,000 of completed work still hasn't been paid for. You notice we haven't filled in anything else because this is the only problem. My name is Mike Andes. I'm the founder of Augusta Lawn Care. We have over 100.
And I traveled the country helping small businesses scale to the next level. Our goal is to give Malan a six week strategy to get the business to $3 million in revenue this year.
February, things got pretty tough, right? Our bank account went from like 160k down to 40k. It was even a job that we had to go back on that we still have like we'll probably have to pay out like 15k to fix it. If it would have gone worse than it did, it could have taken us out of business.
Have you heard the 4L framework? Kind of what it is. The 4L framework is about solving the constra in growing a business. Liquidity, leads, labor and leadership, in that order. Once you have liquidity or cash, I'm going to turn that into customers or leads using advertising. When I get a bunch of customers, I'm going to need more laborers, employees actually go do the work in the home service industry. Once I get a bunch of employees or laborers out in the field, I need to go get managers or leadership. And that costs more money, causing more pressure on liquidity and the business cycle continues. When I look at the constraint currently, I actually think liquidity is the main thing. And that's just money in the bank. Because right now if you had $200,000 in the bank, you would feel a less stress, B you could continue growing and it not be a huge risk to the business. The question is how do we do that? And I think there's. There's several things like so collections, like people who don't pay right away at the end when you have a process in place. When we look at trying to improve how much money we collect on overdue invoices, there's a lot of ways to attack it throughout the entire sales process. One is simply like changing the terms and conditions on our estimate. So for example, right now do you charge any fees after say 30 days?
We don't enforce it.
Okay. So we kind of Create a six week plan. Like how do we actually solve some of these constraints? So payment conditions and terms of payment terms, we're gonna actually enforce them right now. Does it say 30 days is your invoices are due?
Yeah, yeah, it'll say on there.
Yeah, man. Like we just can't do that. We are a bank right now. Payment terms on the estimate, I think we need to go seven days overdue. So like after seven days we do start to charge fe. But I do expect that when I do inspection and everything's good, that I collect the final bill. So the question is, how do we do that is we're gonna have either a credit card on file or an ach on file. So payment on file.
Do you charge credit card fees when customers use credit cards then?
So right now how do people pay?
They can pay with credit card. We don't have the fees set up yet. I usually tell them to pay with check.
You're either paying the fees or you're paying in holding costs. Holding costs. Everyone's like, I will take checks. And then they wonder why we have 100, 20, 30, 100, 150, $200,000 in outstanding invoices. And so I would rather eat the fees and raise my prices by 3%. Right now Good Hands is charging 30% as a deposit or down payment on any invoice. That's more than $250. And I like the fact that they're at least collecting deposits. We have a deposit threshold already of 250 bucks. I like that.
But we need to increase the percentage to 50%. The reason, because otherwise we are losing money on every job before we get the money back. We get 30%, but then we're paying 30 or 40% to materials, another 30 or 40% out to direct labor, and we're actually going in the hole until finally, and hopefully the customer pays us after the job. Collecting money later is never ever a good idea. I would just change your deposit threshold to 50%. That would be 20% of your revenue in your bank accounts. Like 20%. That mean extra 30 to 40 grand right now in your bank. You notice we haven't filled in anything else because this is the only problem. The only problem is that we do good work. We have leads, we have good labor. It's a really solid team and a really good leadership team. We just don't collect the money once we've made it.
Right. I thought that was our least problem.
No, no. Money is important. Money is important.
You know, when I took a look at Our business. I thought this was our least pain point, but it turns out that in order for us to scale, it is our most pain point. I had no idea.
We're going to change the payment terms. We're going to payment on FIL, going to charge at least 50% down. I would also offer a paid in full discount. In the perfect world, every single one time project will be paid in full, 100% before the job even takes place. But a lot of times home service business owners, we're concerned by the fact that if we require that and we make it mandatory that we will lose out on jobs. And you could be right. But what if you could give them the option to pay in full when they had a $15,000 job, you were acquired 50% down, but you gave them the option to pay in full and you might even give them a discount if they were to pay 100% of the job before it even got on the books. Now you all don't have a ton of recurring customers coming back to you, but there are people that know, like and trust you. They've seen your stuff online, they've seen your website, they Trust you guys. 10% off if you pay us up front.
15% is a good profit margin for everything. And so I would prefer maybe to do 5% off if you paid full, given a discount.
Like if you're able to say $1,000 off of your roof because you paid in full, that might be off of important to someone. This is also, I use it, someone says, hey, we're really watching the budget, like we really can guys squeeze this down at all? Well, you know what, Mr. Jones, we do have another discount. If you pay the whole thing in front, then you do get 5% off. Saves an extra thousand dollars. Now because we have our payment terms ironed out because we have credit cards on file, this shouldn't really happen much and that is customers not paying. But we do need to create some automated follow up texts and emails going out to the customer. I'm doing one day, three day, five day, seven day. You can do it as much as you want. I will harass the person who pay me, but this is your last line of defense and that is like we need to collect the money.
That's funny because.
You'Re not gonna like this one. But last week we just like finished up at like 70k job and you paid 30% down. So it was, I think it was like around 40k or 42k. So I said hey, I'm gonna call you up, can I do the job inspection now. He's like, yeah, go ahead. And so I did the final walk three. And he's like, oh, are you guys gonna come back up for the check or do you want us to? How do you want to do it? And I was like, oh, don't worry about it.
The office will send that to you later. No, we need to make more money. We need to collect every dollar possible. Okay. Final inspection equals money in pocket. So we're gonna completely avoid overdue invoices by attacking three distinct areas. First, during the estimate process, I'm collecting a larger deposit. Then at the job being done, the inspection, the walkthrough with collecting all of the invoice, and if all else fails, I'm gonna have a card on file. The third part, a card on file or an ach bank account on file to be able to charge the customer. I should never have an invoice overdue by more than seven days.
I mean, this is really cool. Like.
It opens up my mind to a lot of the pain points that I've been feeling and how to solve them. So I appreciate that.
If you want to see a six week check in with Melon, click the video attachment above. This is the full episode where we break down the entire of Good Hands roofing.
